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Monday, August 18, 2014

National Day Rally 2014 - CPF and Retirement Adequacy

The speech by Prime Minister Lee at the national day rally yesterday was quite a good one. He touched on various aspects of Singaporeans lives such as education, retirement and living environment.

This year, one of the focus was on retirement. As such, the CPF system was brought up again. PM Lee jokingly said that during last year's national day rally, he was a real estate agent where he talked on issues of housing. This year, the real estate market is not doing well so he became a financial planner. He used a ficticious couple as an example and explained how the CPF system works including explanation on the minimum sum, pledging of property and lease buy back scheme etc. I thought he did a very good job in presenting the CPF in a simple and relatable way which most people can understand. Interestingly, after his speech yesterday, there were more searches on the CPF on Google which increased the number of page views on my various CPF posts i wrote previously. PM Lee manage to get people interested in the CPF.

How much do you need for retirement?

The amount we need for retirement is very subjective as it depends on individual circumstances. PM Lee did a poll during the NDR and most felt $2000 per month is just enough for retirement. In order to receive this $2000 monthly amount from the CPF, one needs to have about $250,000 in their CPF account at the age of 55. This is much more than the current minimum sum of $155,000. As such, PM Lee said that the current minimum sum is actually not that high as one will only be able to have ~$1200 monthly with $155,000. If that person pledges his or her property and draws out half of the MS, then he'll only be able to have $600 monthly which is even lower.

Increase in MS to $161,000 from year 2015

The next increase in MS was announced during the NDR. PM Lee added that he does not see the need for futher major increases to the MS beyond this. This may be good news to many people and young people will not have to worry about the MS increasing to a level far beyond which locks up their money inside the CPF.

However, we have to take note that since the MS will not have further major increases, we could still be only having $1000+ monthly from the CPF 15-30 years from now. Will this amount be enough for our retirement by then?

This should trigger the people of Singapore and especially young people to plan for retirement above and beyond that of the CPF. Previously, people mostly relied on the CPF for retirement and do not have much of their own personal savings because they thought that CPF is already a savings for retirement.

What if you don't have enough for retirement?

There are a few ways to find other sources of income if we do not have enough for retirement. PM Lee said one can continue to work, get support from their children, use their own savings or get money out of their house. Probably that's why the government can be more relax on the CPF since they figured out there are other ways for retirees to get income.

Monetising your house

We know that a house is an asset which can be used to generate income. PM Lee provided a few ways in which we could get money out of our house. We can rent out one room, rent out the whole flat and stay with children, sell the flat and move to a smaller apartment (e.g studio apartment), or take advantage of the lease buy back scheme.

The lease buy back scheme has been extended to 4 room flats where one can sell the remaining lease and get back some money. For a 4 room flat, it is estimated that if you sell 35 years lease to HDB, you'll get $27,500 cash plus $800 per month subsequently.

More changes to the CPF yet to be announced in detailed

Other changes to the CPF include a silver support scheme where low income seniors will receive an annual bonus from the government from age 65.

There will also be flexibility to withdraw CPF monies in lump sum subjected to limits. More to be announced by the Ministry of Manpower on a later date.

Conclusion and my thoughts

Singaporeans have been asking the government to give back their CPF monies. From what I see, the government has indeed heard the feedbacks from the public and is trying to make the CPF system more flexible. As we are given the choice to withdraw more from the CPF, we have to bear in mind to plan for our own retirement. If we withdraw and spend more now, we will have lesser for the future.

Running out of money in your old age will be a sad case. Some have to continue working even in their 70s and 80s, some quarrel with their children and others have to find other means just to put food on the table. These are real cases which I believe is vwry real in our society.

Many want to know how to plan for retirement but few know where to start. Before they know it, it may have already been too late. A national financial education and literacy program in schools and institutions will help instill the right values towards money and inspire young people to be financially prudent at an early stage of life.

What are your views on the national day rally? How do you feel about the changes to the CPF? Feel free to comment and discuss below.

14 comments:

I think the main problem is still the shrinking Singaporean Core. Still no solution in sight but already seeing shortage of manpower in SAF, Police force etc. With the silver tsunami, can the CPF with shrinking contributions from the young continue to support the massive greying population? What if economy hits a rough patch and the foreign "talents" leave Singapore for greener pastures? Property prices will plunge, so future generations have nothing to monetise. Better tackle the root of the problem. Grow the core local population. We are already late. At least give it a try before history condemns the government for not trying hard enough.

You pointed out a very real problem which Singapore is facing. I believe the problem of population is what the government is worried about too. If businesses can't find workers, many will leave our country. PM Lee did say the government have to make sure the economy continues to be vibrant and grow stronger. Growing the core population is a trickle situation which many countries in the past have had problems with. One example is Japan. How to solve this will depend solely on the government themselves.

Your reply sounds like the government's ie many countries have the same problem. Many countries may survive but Singapore may not. Many countries do not pay their ministers hefty salaries. Solution? If Singaporeans do not feel they can retire comfortably, the obvious impact is they will not procreate. Consider community villages where the elderly and retired can keep fit, look after other elderly or help out in nursing care, where food is cheap because of low rentals , where they are entitled to retired medical benefits similar to Pioneer generation packages. We are not even sure if future generations will have such benefits (most likely not since dwindling younger population). Vicious circle isn't it? Apartments in such community villages must be cheap. Make sure Singaporeans feel safe to retire. Having not enough CPF and then looking at ways to monetise from the HDB flats however is not going to make the masses feel secure. When the young see that the government takes care of you when you are old and can comfortable retire, they will think long term and set up families. THen encourage couples to have kids eg give baby bonus of 20k to 30k to help reduce their mortgage loans for each kid. Expensive? Not if compared to the demise of a nation.

Other countries do have problems too. In US, the govt is in debt. In Europe, several countries almost collapse due to debt too. In Europe, the problem is due to the fact that they had provided welfare benefits to its peope for the longest time. This is called using future generation money. Now, the young people suffer because of this.

Other countries aside, Singapore do have our own problems too. A fact is we're really really small. How long we can survive is still not known with limited resources and limited space to grow.

Future generations in Singapore have to plan for themselves. As a young person myself, I do understand the high cost of housing and even having children in Singapore. But the weird thing is since young people know its going to be costly to live in Singapore, why are they people still spending their money on restaurants and buy expensive stuff? Many people even spend so much on weddings and never think about the future? This is the kind of problem we have now. The retirement problem will still be there if our people don't know how to plan for one. We can't depend on the govt forever.

Hi, I like your self reliant attitude and this is what I hope can help our nation survive. Unfortunately, many of these problems Singapore faces are deeply intertwined. If no retirement, Singaporeans will work hard for themselves first, where got money to set aside for kids? If housing is expensive and lifestyle has to be compromised, why would they sacrifice unless the yearn for parental roles are greater? In 10 to 20 years, the government will be weaker, the core population very different if still existent and economy may be struggling along. A flower cannot be red for a hundred days. Singapore has bloomed for 50 years and its most valuable resource is dwindling. Take care of the people - their housing, their transport, their education, their livelihood, their health and their retirement well. As in your first reply, these policies have to be shaped by the government. I agree with you that there will be people who do well and people who struggle no matter how good the policies. That is where safety nets come in. When times are good, your safety nets are strong like now. When policies do not plan for the long term, the people will suffer 20 years down the road.

Seems like a lot of the problem comes with high housing prices. As young couples get married and buy their own house, they realise that at the end of the day, they have very little left thus delay having children. You're right that the problems are interwined. These are complicated problems which I have no answers for. But probably by instilling financial prudence at a young age will go a long way.

I believe that the govt did notice this problem which is why they are putting in place the new programs in the education system. Social media in general have imbued a sense of materialism in a lot of the youths and young adults of our generation but what a lot of us lack is financial literacy which is the reason why ppl do not understand the MS. Im more keen to see whats the plan in mind for cpf with the announcement of a more flexible withdrawal system in place

New programs in the education system? Do you mean the financial literacy classes in secondary achool? You're right that our youths and young adults lack financial literacy. I hope for a national financial literacy program and will be thinking of ways which I can contribute in this.

With more flexible withdrawals, people who withdraw and spend earlier will have to think of other ways to have enough for retirement. Most likely they will be forced to sell or downgrade their house just to survive in old age.

Encouraging financial prudence is of course imperative and good to make people realise the usefulness of CPF. At the end of the day, it is only about solving the problem of adequate retirement. It will be just tackling one problem when there are many others and many years later, the government will realise it is too late to solve anything when the core population is non-existent. The blind men are groping different parts of an elephant and cannot see the big overall picture. Yes, LKY saw the problem but alas, he too felt that he is too old to solve this problem. Things fall apart, the centre cannot hold. The day the core local population falls below a critical mass is the day this nation falls apart.

I hope we don't see a shrinking core population. We're mostly relying on foreigners to sustain our workforce now. The lastest figure was about 1.3 million foreign expats working in Singapore. But like you said, it is not sustainable.

Now, there are only 2 possible solutions to this problem. Increase birthrate which has been very hard or get the foreigners to commit themselves to Singapore and convert to citizenship which is not easy as well. What other ways are there to solve this?

Can you trust foreigners in your SAF or police force? No right, so the only way is to increase the core population. The citizens who call Singapore home and will die to protect this country. Take care of their retirement. Now the government is looking into the CPF. Take care of their housing. Give baby bonuses to help young couples clear their mortgage loans. Help elderly settle into cheap housing in retirement/community villages.Take care of their food/meals. Cheap food centres in retirement/community villages. Take care of their jobs. People who lose their jobs can temporarily work in these retirement/community villages where cost of living is not high. Fit elderly can work in child care centres or nursing homes in the retirement/community villages. They also get to interact with other elderly and co-workers in the community villages. Take care of their transport. Think enough MRT lines already. Elderly already enjoy discounts. Take care of their health care costs. Pioneer generation packages and CHAS to cover more singaporeans. Please, singaporeans only. Not PRs.

Hi The devil is in the details LOL. If just by listing the general outline and resolve the issues one by one, then anyone can be prime minister. The government is struggling with CPF alone, let alone the ability to focus on all the issues. For CPF alone, you already need an advisory committee to look into specifics eg raise employer contribution, raise rate returns, etc. There are many sacred cows to consider eg raising maternity leave to 12 months or even more....there will be a lot of heated debates and calculated moves....how bad ? The report card will come in 5 to 10 years....but I expect red ink

Actually the problem with the CPF is that people do not understand the benefit of the system. CPF in itself is a good system that acts as a social safety net. But with the call from people to make it more flexible, the government have to do something about it if not the hatred will grow deeper. There needs to be greater communation between the govt and its people. The trust needs to be built up again.

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